Analysis of the Situation of Olive Oil Prices in Spain: Causes, Solutions and Forecasts

To understand the low prices in the olive oil market, we sought the opinion of some leading producers, experts and operators in the sector, in order to address the causes and possible solutions to this situation.

We have asked:-

What is the origin of the current situation of prices at origin in Spain?

How could this situation be reversed? Is there really a structural problem in the sector for these price oscillations to occur between campaigns?

What do you think will happen in the next months?

Álvaro Olavarría, Managing Director of Oleoestepa1. It is due to several reasons. On the one hand, there have been tensions on several fronts that have unleashed much disorder in the offer; and, on the other hand, production data in Spain up to February have been higher than the previous official estimates and assessments and point to a probable new record. Spain accounts for more than 65% of the total availability of olive oil worldwide this year, which will lead us to an average worldwide link stock but all concentrated in our country, compared to the distribution of other years among several producing countries.

2. In the short term only climatology can reverse this situation and in the medium term it is possible of the offer organizes. Nowadays we don't have a structural problem. The volatility of prices in commodities is directly proportional to the commoditization and loss of value. We must take note that there is more volatility in a lampante oil than in an extra virgin.

3. The next months are normally the best and we will surpass the exported figure of 1,100,000 tons of the 2013/14 campaign. Also the national consumption, which grows by 2.7%, will recover part of what was lost in previous years. EVOOs are scarce this year and the current price differential of more than 600 euros/t. will be maintained, with the price of lampante oil. It is in our hands to defend this.

José María Penco, Director of the Spanish Association of Municipalities of the Olive Tree (AEMO)

1. The harvest campaign in Spain is coming to an end with a production close to the record, which together with the farmer's need of cash to meet expenses, causes a big and concentrated supply in these weeks, and being so, buyers are in a comfortable position, waiting to do their operations at low prices. However, the low production in the rest of countries balances the campaign and therefore there are no objective reasons for a price collapse as important and accelerated as the one that is taking place.

2. In the short term the only way to reverse the situation is not to sell below costs. In the medium term, self-regulation of the sector should be implemented through the Spanish Olive Oil Interprofessional, as well as the activation of mechanisms such as the private storage, but with updated prices that face reality. In the long term, the only solution is to expand foreign markets and to increase demand.

3. Everything will depend on the weather. At the moment, the last months have been dry in Spain and, therefore, if the lack of rainfall is confirmed, the price will recover; However, if the spring is wet and the flowering conditions are favorable it will be difficult to recover prices in the short term.

Juan Vilar Hernández, International Olive Oil analyst, CEO of Juan Vilar Consultores Estratégicos and Permanent Professor of the University of Jaén

1. The conditions that have led to this fall in prices have been several. In the first place, a high stock was stored in the oil mills waiting for a rise in prices, and the beginning of the campaign precipitated the exit of these stored oils. Another factor is the constriction of consumption and, finally, the high international stock at the beginning of this campaign which, together with the high stock in the current season, have expressed expectations of supply that exceed those of future consumption.

2. With the promotion of the product in order to achieve a potential increase in the demand, bearing in mind a possible fall of internal consumption in the main mature markets (Spain, Italy, Greece, Portugal, Tunisia and Jordan), and a stabilization in markets such as the United States. And through strategies aimed at increasing the income of the sector at the origin, improving prices and optimizing costs.

3. The most appropriate option would be to opt, as soon as possible and urgently, to incentivize the increase in demand in a directed and coordinated manner.

Jesús Cuervas, CEO of Jesús Cuervas, Aceites y Derivados1. The harvest in Spain is very important, greater than the expected. Once the doubts generated at the beginning of the harvest have been resolved (yields, capacity...), prices have been adjusted to the usual levels for years with high surpluses, despite the poor production in other countries.

2. In my opinion it is a structural problem as long as the producer doesn't assume, without the need of a public regulation, the storage of surpluses of long campaigns to sell them in short campaigns.

3. I think the market is at very low prices, so it's hard to expect big declines from now on. However, the lack of rain could cause a change in the trend and a moderate rise in prices.

Luigi Caricato, director of Olio Officina

1. Olive oil prices in Italy -although higher than in other producing countries- do not satisfy the operators, especially those on behalf of the agricultural part, which is the most sacrificed. Despite the low production, prices, instead of rising, remained as they were, as always. This situation is anomalous and is due in part to the tendency to keep olive oil from the previous season as a reserve for future needs, given that a negative year was expected.

2. In Italy all problems are structural and it is difficult to find a solution. The Italian supply chain is very divided and fragmented, with terrible and exhausting internal struggles. The fact that we are not self-sufficient is a big problem; Italy suffers from strong price fluctuations from Spain, a situation which recpercutes on a consumer that remains disoriented.

3. What will happen in the coming months is unknown, but surely the situation will not change much, because every year the phenomenon of prices is again the same. The real and important problem is that consumers are not willing to spend high amounts on extra virgin olive oil. A product culture is lacking and the predominant purchase is only from the cheapest price. The solution, perhaps, could be the creation of a "Stock Exchange" managed outside the main producing countries and destined to increase the prices of commodities, since this is applied successfully in other sectors, such as coffee, where consumption growth is registered as well as a substantial increase in its prices. More